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Monday, December 19, 2016

Brokers Report: Gamuda - Stronger Quarters Ahead

Upgrade to outperform with new target price (TP) of RM5.50

Gamuda’s 1QFY17 net profit came in at RM162.1m (+6.6% QoQ, +0.6% YoY), which was within our and consensus expectations. The 1Q net profit constituted 23% and 22% of our and consensus full year estimates which we deem in line as we expect subsequent quarters to be stronger. Q1FY17’s performance indicates that earnings decline appears to be bottoming out, with construction and concessions divisions registered earnings growth while properties division continued to decline. Outstanding orderbook is now at RM8.9bn, with RM8.7bn secured in FY16. Near term, the Group is eyeing projects worth RM3-4bn from jobs such as LRT3, Gemas-JB double tracking and Pan Borneo Sabah. As for the long-drawn negotiations on the SPLASH disposal, we understand that a deal is expected to finalise in Q2 next year. All told, we adjusted our FY17F-18F earnings estimates by -1%/-6% after changing our billing assumptions for construction and properties division, Upgrade to Outperform (from Neutral) with a higher RM5.50 TP (from RM4.90), after we rolled over our valuations. We expect Gamuda’s earnings to pick up pace from FY17 and to continue to benefit from the large infrastructure projects expected to be rolled out over the next 2-3 years.

Outstanding orderbook of RM8.9bn (from RM9.0bn). Outstanding orderbook depleted slightly with no new contract secure during the quarter. Earnings in Q1 rebounded, due to higher margins achieved.

PBT improved 16% to RM59m despite 18% fall in revenue to RM696m. Outstanding orderbook stands at RM8.9bn, from jobs such as KVMRT2 Underground and Pan Borneo Sarawak Highway. In the next 12 months, it expects to add jobs worth RM3-4bn by participating in jobs such as LRT3, Gemas-JB double track project and Pan Borneo (Sabah portion). In the longer term, with its expertise in railway construction, it should participate in High Speed Rail and MRT3 and expects Penang Transport Masterplan (PTMP) to start contributing to its orderbook build-up. Elsewhere, the validity of its PTMP letter of agreement (LoA) has been extended to Feb 2017 with submission to DoE expected by end-2016 and first tender expected by mid-2018 at the earliest.

Sold RM430m properties in Q1FY17. Property earnings continued to weaken in Q1 with revenue slipped 2% to RM272m and PBT declined 29% to RM48m. Group presales totaled RM430m in Q1, and on track to meet its full year gross sales target of RM2.1bn. Unbilled sales stood at RM1.9bn. Domestic presales expected to improved this financial year, driven by 3 new townships such as Gamuda Gardens, Kundang Estates and Twentyfive.7. Elsewhere, Vietnam projects are also expected to perform satisfactorily, and Q1 presales totaled c.RM170m.